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The Business of Savings
How to save $49,000 a year in a 401(k)
Most know that 401(k)s offer high contribution limits, but many think the current annual limit is $16,500 ($22,000 if over 50+ years of age). Yes, they are absolutely right for what an employee can contribute to their account. However, with an employer’s company matching and/or profit sharing, the limit is much, much higher.
No matter what kind of business you are or even if you have employees, the all-in annual limit for each employee is $49,000 or $54,500 if you are over 50. This can result in serious tax savings and why many self-employed business owners -- solo 401(k) plans -- find this very advantageous.
Here’s how it works. If your company is structured as a corporation, the employer can contribute up to 25% of the company’s W-2 payroll into the 401(k) plan. This -- including your employee’s contribution of up to the $16,500 -- is capped in total at $49,000. If your business is an LLC, it is 20% of your net schedule C (IRS form) with the same $49K limit. While this limit is unrealistic for many companies with a large employee base, the amount an employee can benefit is well beyond what most people are aware. These high limits can be quite a benefit with real saving and tax opportunities for you and your employees.